Niall Ferguson: China Masters the 'Killer Apps'

11/3/2011 5:36PM

The U.S. has lost its position as the best place to do business, and China and the rest of the East have so mastered the ways of the West that they're charting a whole new economic paradigm, Harvard historian Niall Ferguson says in an interview with WSJ's John Bussey. Photo courtesy of Jeff Bush.

This transcript has been automatically generated and may not be 100% accurate.

GB's ... when is John busty welcome to the big interview I'm here today with Neil Ferguson ... who is an economic historian ... it teaches at Harvard Harvard Business School ... you have a new book out ... civilization ... the West and the rest ... of the talk about that and talk about some of the ... team's ... findings that you have in the book ... and then he gets you what you describe in the book is twenty subsidiary points what your findings mean for the West ... and so is this an inevitable rise of the ... of and the Shinnecock are we ... in a profoundly different period now of Western small section of the world ... so this walk ... out of it comes six would you describe killer apps and I wonder if he could not walk through the steps ... maul question and I want to depose was thinks what was the laughter and fifteen on ... a minority of people the people it the more we can Whitestone your open it's ... it's cold in its above is the supplement ... became so dominant economic Committee and CTO for the rest of the world including the majority of people living ... in Asia ... this pretty is the biggest question that an economic historian ... and ask because ... it's the biggest film of the so-called great the devotions of the last ... millennium ... pretty Reade's simply ... go from a world in which the average Chinese is a bit richer than the average North American ... to building nineteen seventies when ... the average American is twenty times richer ... than the average Chinese and it's a similar story to compare ... see India's capita GDP which ... means ... stability of the book is that there was six institutions ... on McCollum killer ups may need to gauge the interest of my ... teenage children but we will say ... institutions in the sense of the time ... but the separate to the west around the world really develops ... in the West and will last for centuries ... by the West and ... the sixth innings of the explanation it's all in all the words ... national ... director and it's all the way of the one to which is actually ... made institutions that changed the incentives ... made people but it did in the West for us this competition ... notably in the economic sphere that in the political sphere ... you've got this fragmented West ... which looks of competition between small states in competition with instates between ... corporate Baldt's and in China for jumpers compared to the Office of the swamp decentralized and pop ... the second of all ... the killer autopsies is up to this on to the revolution of the seventeenth century which transforms the way silences down ... well with the rest of the world have been some signs that the these numbers will ... begin in the lead back in the medieval period but ... the something new about the people I can use them to ... in the way that it transforms our understanding of ... the world ... the ... killer opposite the role that Hindi speaking one is the isthe rule ... based on private property rights to think Joan Wall ... and this way of organizing Osisko is seen such a way that property rights of ... um well protected by the legal system ... also represented in the process of legislation through some kind of Parliament ... for here Congress that the killer up ... that nobody else pass ... the other three eldest draft law for the sake of producing ... is a great revelation that sentiment in the twentieth century that more than doubles life expectancy ... backstory west of the moment ... the consumer society which is the thing that makes the industrial revolution was on ... Jesus and the West and ... the moment ... and then there's this one can pick the box rebuts books of dollars in the Protestant ethic ... and the spirit of companies in which a hundred years ago it seemed to him to be ... uniquely Western indeed unique ecosystem ... so those I think ... if you put them together with the six killer ups the six institutions that set the west on the spot to deliver this ... and at this point ... we see the east ... beginning to download ... or will in the process of downloading ... those ... of ... institutions characteristics some of them had ... groups in the east wall before ... even in the West ... but ... in your book you describe how they are now flowering how he says it uses a distinguished the West ... are being adapted by he's very effective ... it's fascinating to watch Knoll Western societies what she has her own and ask asking themselves ... why is it that ... this isn't that awesome and and talk which ... was ... fairly only eighteen thirty one is it that the ... Christian always keep the serial summit on the swim previously ... we use to win ... said people know that this difference quite ... Leone and this in this process may still asking the question what does the West due to ... the we don't do that we shoot on loan from it takes a long haul infernal West in society ... to engage in a recess the bike old diluting the killer of copying ... our institutions in the first to do this to ... announce the squad long time ago in the Meiji era the mid nineteenth century when the debt me say OK because all souls all ... we completely isolated also ... tons of that was a mistake these guys seem to be best for most things that we are core to go out but you learn overnight but could potentially go up the sale to Germany ... the best ... way to the straight to the rebate the brain Europeans in the basin to copy ... everything Kazaa know quite Shaoul which the key institutions also they they could be interesting write science is ... the way that we do our hair and way to redress but this is an amazing maker of ... and that's the beginning of the beginning of the great week and diligence ... which has gathered speed over the last century ... and has reached its culmination ... in our lifetimes because it's really from the late seventies ... that the biggest players China Malaysia India ... starting this and then you see the institutional transformation ... of MITI all the big economies of the rest of the world by the way this is not just ... an Asian story ... it's also a South American story the the big kept on going on right now between South and North America ... so we're living through decent on one hundred years ... of Weston predominance of West ascendancy ... are coming to an end ... in our lifetime it's ... it's establishing an awesome thing is so big ... the Wizard use to West and Allmon's but many of us can't quite get our heads around ... so we think of most of reasons why we shouldn't worry one KLM's to me during these ... these it sort of rationalizations Lok Lou Hwee said the budget ... and ... look what happened today ... or ... everything in the future will bring out into the Dr last fifteen years the Dow above Avago expectations ... all ... of ... you that that everything in China will be designed California by Apple but assembled in China and and ... and deliver a defeat for ... the way that the Chinese of limitations educate their children's road running wars Americans are creates a done deal all these rationalizations ... been in fact this is just a way of ... of of ignoring the magnitude of the change that would've been through the Chinese economy is going to be bigger than the US Open within five years ... after of ... all the Sentry and Kisco has been the biggest the world since eighteen seventy two ... to be some massive ... changes ... and the income gap which in nineteen seventy eight ... the Doherty said twenty to one ... he's not less than five to one ... issue just for us to Chinese ... Arcapita GDP this is extrude for lowering ... the speed of conversions is just the normal ... and it doesn't show any sewing tomatoes of stopping anytime soon ... is ... there some signs of a life cycle to civilisations that ... on there's an aspirational moments on and phase and then there is ... an achievement moments ... and then there is a luxury a moment in which discovered the solution of civilization as we become too rich and too comfortable to stop competing ... um you buy that is is that it is that something of a cycle that were going through now or ... in your book you suggest I was the bets ... it's not as clean up process is that ... that that civilisations are subject ... to shocks from maybe one point two one now ... I think most people if you just proved that that that de Foltz ... into actual sensing assume ... that civilizations like him because ... wrought is and then they reaches enters them in a deploying them in the ground to the full it is easy ... you're indicating the most gentle of ... um ... you know the was this a bit like ... olives ... you know we we we get bored and we grow rapidly in the wee which are ... all crying you know I can on prime time I'm afraid we didn't decline and fall ... gently into old age ... that's not actually ... the way that ... musical institutions all about Botsford to which institutions work ... institutions all of its organic and to cease like ... he did some humans ... Eisele seasonal either this is ... old school trend is on human that we would be ... you know we would go from spring through summer ... to winter ... all the way the role of institutions operates ... on the country what we see three study Mr. civilisations is that ... these things ... rise more Kinetics potential weight ... and they reach a kind of of the ... after which they can Kolon us ... with amazing suburbs ... I'm I'm very strong what I luctus ... everything from the fall of Rome ... like the way through to the collapse of the ... North African dictatorships in the last twelve months all about most of the near collapse of ... the eurozone ... I think this is the real cost of the history of that that it's not about ... decline and fall so I mean forget to go and you don't get that Templeton Woods book ... you much more frequently to collapse when the institutions is seen to be doing OK some nice talking to some the breakdown ... so that ... that's a very important sign of civilisation ... that we should all was ... well the decline mobile ... and focus more on what causes collapsed and I find it although we don't or do think this way because ... we seen in the financial crisis exactly what I'm talking about ... everything looks like it's falling in the Roman investment banking ... unto itself on never be staring room in the face ... in the fall of two thousand and eight ... will go back a little of a ... super she's so excited about the Soviet Union through the cold War ... he was right from the chip of the reform of kids opponent of Gorbachev ... within a few users to completely destroy the whole thing ... so what do we need to look as we ... see on the strong historical process ... for these normally the piece of the discontinues two is ... a rather than gradual downward slope ... um maybe the twentieth century ... contributed just continuity ... to the upside ... for the West ... and ... with a one were to where ... we were two particularly where you can add ... in eastern economies incinerated ... by the war you're ... a small the US ... left intact ... in fact star it's on to the war because war production ... on so we seem to need to be ... that that was a moment for ... us Thomas were within four to begin to care workers more ... because it was a competition abroad are on the lead with the social basis incinerated but the new bed political systems such as was ... founded in China and Russia ... that ... put a damper on competition right on that ... the process of globalization ... and so you had even less competition ... in it for to pay workers more bands companies began to do so the cost went up ... and now we find this work are stepping into a ... much more so the ... level playing field ... in terms of wage arbitrage and around the world ... that is particularly painful ... the argument that goes all the moments about it because he seems to me to be quite ... moody conceptual artist and historical Toms this a strong temptation to drop calls link scroll say misbehavior on Wall Street ... to widening ... income gap ups this is the essence of the Occupy Wall Street message ... in reality most of the adequacy of them was seeing comes from the stagnation of incomes in even the decline in ... the lower income groups about is mostly due to globalisation because ... the returns to being among skilled worker ... in the United States of collapsed ... it was because of competition as you say it's it's close arbitrage opportunity for any ... global Corporation if suddenly you now ... the Asian workforce coming on line ... forming the great ... reforms of them from paying them a ... place to reforms that happened to ... in India so that ... I think that's really the key to understanding that the story that that the reintegration of the world economy but that is a code of the last two ... or so years ... has just changed the game and Isramco hopes of the Solix of the institutions that came in ... when globalization Proton beginning with the new deal ... remember the great Depression essentially ends an era of globalisation recalls is all the ... big economies of the world to fragment ... into moreso talk to the pool it's ... been a gauge of this huge destructive ... power more even more destructive than the post cold War ... but as you say to the last poets of the world economy ... flying from dedicated to China in ... particular to nineteen forty going ... up but also in a rush or even a distiller ... so we're not living through this wisteria which began and seventies ... overreach globalization ... this decline globalization is proving far more beneficial ... to Norwest less than the first time around a hundred years ... the world was skewed as such with the globalization benefits that ... Americans in particular ... because of the massive productivity gap that existed ... between American workers workers anywhere else ... you could try industry was in India on the news that the inbuilt ... Textil factors that ... of the board as with so much less productive that the was no real cost advantage ... that's different today ... but because the of work ... on of the workforce generally in Asia is much higher ... than the most striking feature action of the month that his is the amazing productivity growth ... in Asia especially in Chinese manufacturing ... so we have a problem ... if we want to maintain the enormous gap in living standards ... a rose ... security in the ... twentieth century ... we huffed and ... a chief increase US productivity growth and that ... he ... did but let's talk about what's most of what this means for the West ... whether or not it's an inevitable ... rise ... of ... the of the East um that ... that doesn't pass the the the West ... to store apps competition science property rights medicine ... consumer society ... work ethic ... now receive five or this is certainly in China by Nazi property rights will run a lot which ... seems to be ... I was a really key player for ... your expectation my expectation that it signed a contract ... for property ... for products ... for some kind of service interaction ... that ... you abide by that I will tutors recourse quirks that doesn't exist in China ... much of that is the ... disadvantage ... of much of that is this something ... that China is ... slowly downloading as opposed to not having download and will go up Domanig is a huge disadvantage is their Achilles heel but they don't cost ... anything resembling ... a real world lol which probably would want to protect says ... in which the courts can be relied upon to ... deliver ... justice ... products ... was an exception to this which is called Call ... above the main on ... the Aussie is really the way dogs in the Stoxx ... we would ... be assumed that this was square of the large stakes in particular that excite all its move lol private property rights is not what the United States is ... is all about it ... the worrying thing though ... is that if you look ... at Manges all ... the effectiveness of legal institutions the effectiveness of private property rights ... the efficiency of of cool summed up the cost ... of mitigation and a whole range of different missions ... because of the nine states don't Intoll well ... I'm a good example of this is the UN World economic forum's ... global competitiveness ranking if you ... get drilled side and the date of that they use to produce the track ... a look at them many measures of stock of the efficiency or effectiveness of legal institutions ... the U S is doing reading that it's only been in the top post ... countries for these sorts of things and it ... is very striking to find than fifteen and sixteen ... phone call ... is well ahead of us so we'd all be complacent about this or any any of the Kawerau wheel was good that this kind of thing ... as we think we are or is we use to be ... done reading of ... the same going is a mean this in this area ... but ... I think we tell ourselves we was ... still ... somebody ... put it this way ... we use of the roof fall ... in new estates and though we of the rule yes ... it is different ... to ... what it what is what is ... this is to do ... in ... this this is ... deserved ... one or another ... all alternative killer apps for business to download ... on ... our our day to look at this and say ... yes maybe China is innovating as much as working people will debate here now but it's inevitable that ... it's going to happen ... um ... that's a lost cause ... making that argument that there never to be able to innovate as well as we are what what it was business to do that think ... that is and how a good strategy ... there are two ... issues here the first is ... we need to look really halls ... of the policy of institutions ... in our country when we need to be far more self critical about the way ... these different things ... walk right across all six Kinross we need to be asking hard questions about ... how we we need all those competitive in the Columbia says we think we ... how we re doing when it comes to Sun's SKUs for example ... with the Nobel Prize's tells you how good you use to be a science the good old people ... out is that in ages I I worry about unsold sweet festival I think we have to really focus ... on but with the institution's here I make this ... when we campaign for ... change I think the political subject I make it a much more focused discussion with policy ... all institutions of the second we have to do ... is we have to be much more aware ... of the speed with which the gap is closing ... China is not the only game in town remember in India a new novel with six killer Ops Beck thanks in part of ... the legacy of project roll ... they just don't work very well in the machine runs from the Sony if you ... want to pursue the ... computer analogy a more complex will more inefficiently more than ... if you won and took software is like you how's that the software on them on the Oprah Texas and other viruses that make him run released Monday ... I think what's happening in India right now is that there would be cleaning up the ball drop and you see a ... big push ... to change the culture of corruption in Indian politics and that's helped write ... something that they they have the Chinese debt which is a free press ... so ... if you look at what's happening in these societies ... don't assume it's toxic ... India is moving very very fast from the old days of the red tape brought to something from O'Donovan can see this in hopes of India Gujarat for example where ... with state governments actually ... doing in a mock its job ... so you gotta be aware of the pace of change that is going all ... out and and be ready to go about it is better in each of these six areas than ... the competition abroad ... we need to be as good as the fast and that ... seems to me ... to be one of the things that slow the missing McComb said in the US ... a recognition that this practice may not be here ... this is ... the only way is ... approved to country ... in the sense that having been Noble one for so long ... we saw more tend to assume ... that the answer to any question ... will be found here ... whether we go back to consult the wisdom of the founding fathers ... gold going pay homage to great professes an economics of the RGB schools ... the single Beheer ... main or infect people Sobel ... to solve the problem of health care ... is a big part of our story Madsen where the killer up in the opposite sense that a prolonged ... life expectancy to it and we are no longer doing their job well we we got up super expenses system that produces really crummy results ... are always sold but by having a conversation with also ... coincide with the local what works really well Brell didn't start cooking Navy need our own Meiji restoration ... here ... as we're going to look ... by many as you get to it you know you trustee but institution changes um ... odd ... years of ... fundamental parts of society ... that of making them better finding best practices abroad ... on adapting ... and changing that's a long process your company today ... and will work for persists um ... they've tried the economy ... if your company today ... doesn't this ... realization ... made you think ... the best thing that I can do ... is ... detached from anyone society which might be falling behind in its institutions for men becoming less competitive for whatever reason including the it's the it's ... quiet and go as global as I possibly can have ... people footprints in ... economies and societies around the world so that I can continue to arbitrage not just on ... labor costs ... but on intellectual capital ... as well ... I did it ... I would think that would make the company want to become less American ... and more ... international as fast as they possibly can ... you bet ... on us was been happening ... in the SNP five hundred is the globalization index ... when was the company's into the mulch mulch launch an ... American business ... in April than in the state ... of the box was open could grocery more the health of the U S economy it's a it's a brochure for the health of the global economy ... I think this process is not going to stop because the opportunities still there and we would still kind of overcoming a son whom bias whether it's causing Vestas or is ... is a strategy is because of it that this mean he wants the companies that but none of them the most of this ... will be speaking dumbass ... so I think I think we did this he continued ... shipments ... of corporate America in the sense of multi national corporate America ... from the U S as the U S becomes the less and less business friendly but I missed the ... last ... thing I mean the burden of regulation is just a post financial crisis to crisis financial services is growing in ways that ... extra for it I mean who has actually read all of the gold franc ... of financial regulation bill on one of the very few people on the Gold through it ... and what it tells me is that it's Christmas for lawyers ... it is a fantastic opportunity for people to build corporate clients ... point to interpret this ... that read I'm feeling ... would you choose ... a piece of legislation ... all I was sensational by the suppose I decided to give up being a professor ... and ... former one of my he received and will put increasing euphoric ... and Detkin ... are due to hold call and go somewhere for a lot from them as a region that remains that the legend states become ... know from recent thanks much for joining us ...